Oil exploration waning?

A new report released in November by researchers at Rice University’s Baker Institute for Public Policy suggests that the major international oil companies are investing less to explore for new oil deposits while smaller American oil companies ramp up their oil exploration activities. If this trend continues, the report’s authors say, the major international oil companies may suffer in the long run, and consumers may feel an even greater pinch at the gas pumps in the future.

In the report, Amy Myers Jaffe and Ronald Soligo analyzed data from the U.S. Securities Exchange Commission (SEC) of the 25 largest oil companies. They compared the spending practices of the top five companies — the international giants BP, Chevron, ConocoPhillips, ExxonMobil and Royal Dutch Shell — to the next 20 largest companies, including American firms such as Marathon and Pioneer. Jaffe and Soligo found that the top five’s exploration spending fell from $9.8 billion to $6.1 billion between 1997 and 2005. Meanwhile, the next 20 companies increased their exploration efforts, which now equal that of the top five.

Jaffe and Soligo suggest the top five companies may be planning to acquire some of the smaller firms in the future as a way to replenish their oil reserves. But in the international edition of Newsweek on Nov. 26, Jaffe indicated that the reduced investment could “endanger the companies’ long-term reserves and their ability to increase production in the future.”

But oil industry experts disagree with the level of concern. Sara Banaszak, a senior economist at the American Petroleum Institute, an industry trade group, says the report exhibits “short-sightedness” and “a lack of context.” The report ignores “the importance the [large] companies play in developing technologies,” Banaszak says: Although smaller firms may explore certain niche areas, the large companies are developing technologies that will allow the entire industry to gain greater access to difficult-to-reach oil deposits, allowing greater production from already known fields. She also says the report glosses over the fact that the large international oil companies increased their exploration spending by 50 percent in 2006, and saw an increase in oil production during that same year.